Wearing it as I post!
“What is the yield-to-death?”
Those words spoken by the legendary hedge fund king, and new owner of the Carolina Panthers, David Tepper, to my salesperson in 1993 when we were trying to convince him to buy a chunk of Peruvian busted bank loans at around 8 cents on the dollar.
Due Diligence
Tepper was half joking of course but he was covering all the bases as his fledgling hedge fund, Appaloosa Management, began to venture into the new emerging asset class of LDC debt.
He was, as any good trader and investor, skeptical and concerned about the country’s political stability. The Shining Path, the Maoist guerrilla group terrorizing the country; the risk of a military coup d’etat, and all the uncertainties, which come with investing in an emerging market country.
I recall he did pull the trigger, and if my memory serves me correct, it was, or one of, his first investments in the emerging markets. If he held the position, and I am sure he did, the loans appreciated close to 1,000 percent over the next few years.
Tepper is one smart and tough dude, and a helluva a good guy.
NFL Owner With Courage
I like, and totally agree, with what he said today on CNBC. This took some courage.
Billionaire hedge fund manager and new Carolina Panthers owner David Tepper lashed out at critics of NFL players, in particular President Donald Trump.
The Appaloosa Management head said more focus should be on the good his players and others do in their communities and not on the headline-grabbing protests staged during the national anthem.
“These are some of the most patriotic people and best people. These are great young men,” Tepper told CNBC’s Scott Wapner in a “Halftime Report” interview from Carnegie Mellon University. “So to say that [they aren’t patriotic] makes me so aggravated and angry. It’s just wrong, it’s dead wrong.” – CNBC
Do you think he cares about the backlash from those who disagree, including POTUS?
Brass Balls
Tepper truly has brass balls. I have read he keeps a pair on his desk.
During the good old days of extreme volatility in emerging markets debt, there were periods when some sovereign bonds would sell-off 20 points in one day due to contagion from, say, the 1997 Asian Crisis and the 1998 Russian Debt Default.
When it always felt the worse, when the world was coming to an end, Tepper was in buying. Not always picking the bottom but he smartly knew nobody can pick bottoms.
He did get caught in Russian local currency bonds in 1998, however, betting wrongly the Yeltsin government would choose inflation over default. He says it was his worst trade and investment ever.
Go Panthers
David Tepper makes me wanna become a Panther fan.
Strike that, I am now a Panther fan because of David Tepper.
You have to own assets to make it in the New Economy. Pity the younger generations.
Check out the growing wealth disparity in the below chart, which is clearly the result of monetary policy.
The Fed’s increasing reliance on the asset price channel of the monetary transmission mechanism over the past decade has been to “jack up” or inflate assets, hoping the “wealth effect” stimulates aggregate demand. Household net worth is now at a record level and the economy is purring.
The asset price channel of monetary policy relative importance has increased as households have been deleveraging after the GFC, rendering the credit channel of monetary policy almost completely ineffective, at least, until recently.
The result is asset bubbles everywhere.
Political Backlash
The political consequences are also far from benign.
Conservative savers who have kept their money in bank CDs, witnessed their interest income go to zero, while the highly levered and risk takers were bailed out. Many, who have done all the right things — worked hard, saved, paid their bills on time — feel they have been screwed in a big way.
We know of one person, who owned three houses on our street, and didn’t pay his mortgages for over four years, yet still collected rent from his tenants. The banks didn’t foreclose because they worried that flooding the neighborhood market with homes would drive down the price of their collateral. Not the case anymore, however.
He was only one of several hundred thousand deadbeats, who gamed the system, did all the wrong things and were rewarded. The stand up borrower and citizen got hosed.
Do you wonder then why populism is on the rise — The Tea Party and Donald Trump?
We understand and feel the anger, but do hope and pray the backsliding toward tribalism will be reversed sometime soon.
People’s QE Is Coming
Because the wealth disparity is so vast, as it has become in the past seven years, the efficacy of asset inflating or, what we call “jack asset” monetary policy diminishes, and more and more Fed stimulus is needed; as are higher, and higher asset prices.
That is why we believe that during the next recession, the Fed will be forced to roll out some sort of “people’s QE.” That is, the direct financing of consumption, possibly in the form of financing a universal basic income, the direct bailout of public pensions, and the funding a massive jobs facility, for example.
Ray Dalio seems to agree that such policies are only a few years away.
Of course, the new QE will likely be executed through the direct purchase of Treasury securities earmarked for such programs.
Smells Like Argentina
Wow, this smells a lot like late 1980’s Argentina. I was there and witnessed very similar policies. The major difference is the Argentine austral was not a reserve currency.
A “people’s QE” will supposedly ensure the new liquidity is injected directly into the hands of those who will spend it, generating the demand to lift the economy out of its morass.
Sticking with the old QE policy, or just augmenting it with the Fed’s direct purchase of equities and corporate bonds, will prove ineffective due to the growing wealth disparity. The marginal propensities to consume of high net worth groups approach zero as wealth increases.
End Game
The result will most likely be a disaster. The dollar will tank and its role as the world’s reserve currency will be over.
Yes, there will be another deflation scare but it will sow the seeds of inflation as the policies mentioned above are ushered in. Are you listening, deflationistas?
Maybe the Fed should have never have ventured down this road, transforming the economy into the asset driven beast that it now is, but we are way beyond the Rubicon Crossing, folks.
Until then, let’s focus on making money. Everything is awesome.
WIRED’s Lauren Goode takes a first look at Apple’s three new phones — the XS, the XS Max, and the XR. Still haven’t subscribed to WIRED on YouTube?
It was early August 2001 when I asked my wife if we should fly into Washington, D.C. a few days early before my best friend’s wedding. He was planning to marry his sweetheart on September 16, 2001, at St. John’s Episcopal Church. My 6 and 3-year old daughters and myself were in the wedding party.
I wanted some extra time for the girls to see the great sites of the Capitol City, where I had attended graduate school and began my career several years earlier.
I secured some VIP passes from our congressman for tours of the White House and the U.S. Capitol. The passes came in the mail around mid-August with the date for the Capitol tour scheduled at 8:30 am, September 11, 2001.
Just another day. It was before history changed.
We also planned a trip to New York after the wedding as my girls wanted to visit their birthplace. The oldest specifically requested a trip to the top of the World Trade Center’s (WTC) Windows on the World.
Their last night in New York before moving to California was spent at the Marriott World Trade Center, South Tower.
We booked our flights.
The return flight from New York was familiar. I had flown it at least a hundred times — United Flight #93, Newark to San Francisco.
Just another routine United flight. It was before history changed.
Washington, D.C.
We arrived at Dulles airport on Sunday night September 9th, and it felt good to back in Washington.
As we were disembarking, my 3-year old noticed the overhead air blowers were still on and blowing hard. She shouted at me, “dad, they are wasting energy.”
The plane burst out in laughter. California was in the middle of an energy crisis and experiencing brownouts on a daily basis throughout that summer.
September 10, 2001
The following morning we had some downtime, and because the White House was only a few blocks from our Georgetown hotel, I took the girls down to see the president’s house. We arrived at the front gate, and I noticed the secret service on top of the White House with high powered binoculars looking into the sky.
I hadn’t seen this since the day after the U.S. bombed Libya in 1986, in retaliation of Gaddafi’s bombing of a Berlin disco, which killed some American soldiers. I had an interview that next day in the Council of Economic Advisers (CEA) located in the Old Executive Office Building. I recalled how tight security was; specifically, the sharpshooters on top of the White House.
Just for context, I hadn’t been in Washington in five years before our September 11, 2001 visit, and, no doubt, security had ramped up considerably. Put away those conspiracy theories.
Video Tape
I began filming the White House on the day before history changed, specifically the secret service with their high powered eyes trained on the sky above the White House.
I mentioned to my family there must be “some sort of terrorist alert.” My very bright, and analytical, 3-year old immediately chimed in, “dad, they are trying to hurt the president.”
After thinking another minute, she asked, “dad, do they [the secret service] know we are good guys?” It was somewhat hilarious, at least, at the time. We have it all on tape.
Lafayette Park
It was hot and humid in Washington on September 10, 2011, the day before history changed. I took the family across the street, sat them on a bench in Lafayette Park and went to fetch them some water from a street vendor.
Before leaving on the water run, I noticed a middle eastern looking man sitting on the bench next to my daughters. He was fiddling with his cell phone and rapidly thumbing through a stack of ATM receipts. I recall some were from Bank of America.
What struck me most was his fidgety and nervous demeanor.
He was casually dressed, in nice khaki slacks, an olive-green button down shirt, and sandal-like full toed shoes. He smelled of cheap European cologne. I will never forget his face.
During my search for water, for some reason, I had a bad feeling. I began to think the man on the bench fit the profile of a terrorist. I seriously thought about walking back across Pennsylvania Avenue to report the suspicious character to the uniform secret service officers at the White House north gate. I am sure they would have laughed and dismissed me as some kook.
When I got back to the park the man was gone. I asked my wife, “what happened to the guy sitting on the bench? He reminded me of a terrorist.” True story.
Racial profiling? Do you really think I gave a shit?
I had a strong feeling based on his actions and my experience being so close to the first 1993 bombing of the World Trade Center when I worked on Wall Street.
September 11, 2001
About 8:00 am my wife woke us in a panic. We had overslept and needed to hurry to get to the Capitol building.
I knew we wouldn’t make it on time, and, reluctantly, put the kibosh on our trip up to the Hill. She and the oldest went down to the lobby to grab some breakfast. My youngest, still suffering from jet lag, was sound asleep.
I was reading the Washington Post when they returned to the room in horror and said to turn on the television as a plane had crashed into the World Trade Center.
For the next few hours, I watched in shock and was on the phone constantly to my friend, the bridegroom, who had a view of the WTC from his Greenwich Village apartment.
When American #77 went into the Pentagon about an hour later, it was only a matter of minutes before the F-14s were buzzing over our Georgetown hotel.
I went outside and saw people hustling up the sidewalk and noticed the military had come out on the street. A military Humvee stationed at every corner in Georgetown. This doesn’t happen in America.
Get Out Of Washington
I began to fear for the safety of my family and decided it was time to get out of Washington. I told my wife, “if these people have chemical or nuclear weapons, we are smack in the middle of their target.”
As I was going out the door to rent a car, my oldest shouted, “dad, get a purple car.” Yeah, right, I thought.
I arrived at Hertz in Georgetown, and the clerk said I was lucky as there was one car left. They pulled the car up to the office. A purple Volvo!
Charlottesville
On our way to Charlottesville, I was overcome with the incredible grief that all America was suffering, especially thinking about my friends in the WTC. I felt sick.
It was the end of American exceptionalism. These things just don’t happen in America.
Seeing the American flags draped over the freeway overpasses on our drive to southern Virginia, I thought, as many others did on that day that changed history, this is my generation’s Pearl Harbor.
September 12
The next day at Jefferson’s Monticello, a busload of senior Japanese tourists pulled up to our third president’s home. They were soon smitten with my 3-year old. She was one helluva of a cute baby with a unique and very friendly persona.
The Japanese tourists asked to take pictures with her. I warmly agreed and thought how surreal, the day after our own Pearl Harbor. Surely some of these people were alive, and on the other side, on December 7, 1941.
It was the first few days of the grave new crisis, the nation was grieving and in complete shock, just as the Pearl Harbor generation was on that dark December day, which changed history 60 years earlier. And there was my child chumming it up with and a pearl in the eyes of these beautiful Japanese seniors, who were once considered the enemy of the “greatest generation” just a little over half-century prior.
It gave me a glimmer of hope that the country would make it through the dark days.
The Japanese are now one of our closest allies, which could never have happened without forgiveness. No peace without justice, no justice without forgiveness.
Whenever I have a chance and feel it’s safe or not inappropriate, I ask my Japanese friends if they forgive the U.S. for bombing Hiroshima and Nagasaki. I have never received an unequivocal answer. Not once.
It seems the official position is to sweep it under the rug,
In 2007, during Shinzo Abe’s first term as prime minister, Defense Minister Fumio Kyuma referred to the bombing of Hiroshima and Nagasaki as “something that couldn’t be helped.” – LA Times, April 2016
The FBI
Nevertheless, the day after the September 11th attacks, I began to think about that man I encountered in Lafayette Park the day before.
I contacted the FBI to report the incident.
At first, they seemed to mock me. Asking how was he dressed, probably thinking I would reply, “in Arab garb,” such as thobe and a ghutra and egal.
I spoke with the FBI several times after that. They always remained aloof and never provided information.
Enter Bob Woodward
I then contacted the Washington Post’s Bob Woodward, who put me in touch with his research assistant. We had about an ½ hour conversation in which he conveyed to me that Al-Qaeda liked to scout out their targets just before hitting them.
Was the White House a target?
Several reports specifically identified Capitol Hill and the White House as targets on Sept. 11. One said a bin Laden associate — erroneously — “gave thanks for the explosion in the Congress building.”
A key figure in the bin Laden financing organization called Wafa initially claimed “the White House has been destroyed,” before having to correct himself. – Washington Post, January 28, 2002
I can’t remember if it was the FBI or Woodward’s guy who confirmed that the 9/11 terrorists were emptying their bank accounts just prior to the attack and transferring the cash back to the UAE.
From September 5 through September 10, 2001, the hijackers consolidated their unused funds and sent them to Hawsawi in the UAE – National Commission on Terrorist Attacks
The ATM receipts were convincing enough but my suspicions about the man in the park were confirmed when the FBI released the photos of the 9/11 hijackers,
I will never forget that face.
I had sat my daughters down on a park bench across the street from the White House on the day before September 11, 2001 with one of the hijackers. His name was Khalid Al Mihdhar, a senior Al-Qaeda operative, who crashed American Airlines Flight #77 into the Pentagon.
How twisted was it that on September 10, 2001, the secret service were on top of the White House combing the sky for potential terrorists, and one of the Al-Qaeda hijackers was sitting right under their nose, less than 1,000 feet away?
The Wedding
My friends bravely decided not to cancel their wedding the next Sunday, and we participated and shared with them their joy under extremely stressful conditions.
The church was located just across the street from Lafayette Park, a stone’s throw from the White House, and where president-elects traditionally attend their pre-inaugural church service.
During the middle of the wedding, with the country and all of us still nervous and on pins and needles, an army of sirens began to blare. It seemed like it lasted for an hour. Almost certainly everyone in the church thought another attack might be underway.
I thought the presbyter was going to stop the wedding. We got through it.
Back Home
When the government lifted the ban on air travel, we caught one of the first flights out of Dulles back to the west coast. That was one nervous flight.
One of our flight attendants freaked out when a passenger refused to sit down. I have no doubt our plane was crawling with air marshals.
We Made It
We did get through it. The nation got through it.
The world is much different now.
September 11th was too close to my family, but we escaped the ultimate tragedy.
Not so for many of our friends, fellow Americans, and good citizens from other countries who lost their lives on that day that changed history.
I miss my friends who lost their lives that day.
Please God, bless their families and all those who lost loved ones, and the brave Americans who have made the ultimate sacrifice protecting us, and the many who still work to keep us safe.
Everyone Has A Story
Every person remembers exactly where they were, what they were doing on the day that changed history.
I have wanted to write this story down for 17 years but just couldn’t do it. Now my children will have it to pass on to their children.
Everyone has a 9/11 story. Write it down. It’s cathartic.
Since the collapse of Lehman Brothers the story of the world’s attempts to stop the financial crisis turning into a Great Depression has been dominated by central banks’ balance sheets. John Authers describes how this averted total disaster and sparked a big rally for stock markets. Read more on the 10-year anniversary of the financial crisis at ft.com/financialcrisis.
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President Trump and President Obama were in a big pissing match over the weekend on who should get credit for the current healthy economy.
Take our Rorschach Test by viewing the inkblots economic charts and you decide. Then take the quiz at the bottom of this post.
We present you the data over the past two administrations for the:
1) civilian unemployment rate
2) monthly change in jobs (nonfarm payrolls)
3) real y/y average hourly earnings growth
4) quarterly GDP growth
5) Dow Jones Industrials Average (log scale)
The Quiz
Please place your politics under the desk and out of sight lest they may distort your economic judgement.
For each chart:
Bonus Questions:
Answer:
Isn’t it obvious?
Summary
Commentary: Global markets are starting to feel the strain of the turmoil in emerging markets. The U.S. employment report confirmed inflation on the rise and spooking bond markets. Tighter global money to come.
All eyes on U.S./China trade war this week. Expect more weakness next week unless a major break in tariff battle. The S&P500 close slightly below the January high, which took almost seven months to recapture. Monitor 2873ish level closely as the breakout could have been a bull trap. See chart below.
RARELY has the aphorism “what doesn’t kill you makes you stronger” been more apt…
Doctors said Mr Bolsonaro will be hospitalised for at least a week. But with a month left before the first round of the election on October 7th, he has now been made into a near-martyr. “I just want to send a message to the thugs who tried to ruin the life of a family man, a guy who is the hope for millions of Brazilians,” said his son, Flávio Bolsonaro, who is himself running for a seat in the Senate representing the state of Rio de Janeiro. “You just elected him president.” – Economist
Global Macro Monitor 